Apple Holds The Fate Of The Market
Summary
- Large Cap Tech is breaking down.
- Apple is at a critical juncture.
- If Apple breaks through current support, it is likely to bring the entire market with it.
Large Cap Tech is currently breaking down - see my previous articles: The Crash is Starting - Now! and Tech is Breaking Down. As this sector has been the driver of the market this has massive repercussions. Given the high historical valuations, the Fed tightening, and the stalling of the GOP legislative agenda (tax cut potential), tech is likely the canary in the coal mine for a much larger equity decline.
Mondays market action, even on light volume, supported my technical analysis as Tech (Nasdaq 100, QQQ) started higher on the day and then retreated and closed at a new low. This reinforced the current technical setup as the Nasdaq 100 has completed a head and shoulders top, broke through it's 50 day moving average and has just retested those breakdown levels from the downside and failed. Even as the Dow made new highs, tech confirmed it's weakness.
Apple (AAPL) as the biggest component of the Nasdaq 100 at 11.6% and the S&P at 3.6% holds an outsized impact on the market direction. When we look at it's chart it looks to be breaking down, but has not yet confirmed that pattern yet. It currently rests at critical support levels, with any further decline confirming it's head and shoulders top.
If Apple (AAPL) breaks the trendline at 143 it completes the head and shoulders pattern and the measured move implies a move down to 130. However with a move down like that, it would most likely continue and fill the breakaway gap at the 121-126 level and largely erase the entire year to date gains. A move down to 121 would represent a further 15% decline from current levels, and while seems like a severe move, simply represents the gains from February.
While Apple (AAPL) still has strong business fundamentals we are in a seasonal weak spot, as anticipation for a highly upgraded iPhone 8 can cannibalize iPhone 7 sales over next 2 quarters. With this business lull the stock is vulnerable to this type of retracement, given the quick run up over the last four months.
Also if we look at momentum studies, the weekly MACD is giving us a sell signal from a momentum level that has given us reliable warnings of significant declines in prior periods.
If this type of breakdown occurs in Apple it will be a defining event for the market at large. Given the weakness it the Nasdaq 100 and some of the other larger components I highlighted that are already breaking down, Apple will be have a multiplier effect.
That is why Apple holds the fate for the entire market. Watch carefully as we should see some significant moves as either Apple fails and takes the entire Tech sector with it, or holds and reverses the weak technical position of the sector.
Given this weak technical setup, I recommend investors reduce equity exposure, and I have instituted a short using a position in QID the double inverse Nasdaq 100 ETF.
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